Gold (XAU/USD): how it differs from currencies
What you learn in 3 minutesGold is quoted as XAU/USD, which means the price of one troy ounce of gold in US dollars. The word 'XAU' is the currency code for gold, and the platform reads it exactly like a currency pair: the first part is what you are buying or selling, the second part is what it is priced in. Because gold is not a currency, the contract size, the pip and the typical daily range are all different from a currency pair such as AUD/USD. Those three differences change the arithmetic of risk per trade, so the same stop distance in pips can cost a very different amount in A$.
The cost of a 20 pip stop on 0.10 lots
| Step | Amount | Note |
|---|---|---|
| XAU/USD pip size | 0.01 | On most platforms one pip in gold is a move of 0.01 in the quoted price. |
| XAU/USD contract size | 100 troy ounces | One standard lot of gold is 100 ounces, not 100,000 units. |
| Value of one pip on 0.10 lots | A$1.00 | 0.10 lots is 10 ounces. 10 x 0.01 = 0.10 US dollars per pip. At an AUD/USD rate of 0.6640, 0.10 / 0.6640 = A$0.15. This is the value in US dollars before conversion; the A$ figure depends on the rate your broker uses. |
| Stop distance in pips | 20 pips | A 20 pip stop in gold is a price move of 0.20. |
| Risk on the trade | A$3.00 | 20 pips x A$0.15 per pip = A$3.00. This is the loss if the stop is filled at the level set. |
| Same 20 pip stop on AUD/USD, 0.10 lots | A$20.00 | One pip on one standard lot of AUD/USD is 10 US dollars. On 0.10 lots that is 1 US dollar per pip. 20 x 1 = 20 US dollars, converted at 0.6640 gives about A$30.12. The point is that the same pip count is not the same money. |
Brokers may round the pip value, quote gold with a different number of decimal places, or apply a conversion charge when the account currency is not the quote currency. The figures here are worked from the contract sizes and the AUD/USD rate given, and will change when that rate changes.
The mistake people make here
The common mistake is to carry a pip value over from a currency pair to gold without recalculating. A reader who knows that one pip on 0.10 lots of AUD/USD is about A$1.51 may assume gold works the same way, then set a 20 pip stop and find the risk is not what they expected. The fix is to look up the contract size and the pip size for the instrument first, then multiply by the number of lots and convert to A$. Do that before placing the order, not after.Check yourself
Gold moves 50 pips against a 0.05 lot position. What is the loss in US dollars before conversion?
0.05 lots is 5 ounces. One pip is 0.01, so 5 x 0.01 = 0.05 US dollars per pip. 50 x 0.05 = 2.50 US dollars.
Using the AUD/USD rate of 0.6640, what is that 2.50 US dollars in A$?
2.50 / 0.6640 = A$3.77, rounded to the nearest cent.
A 30 pip stop on 0.10 lots of gold: what is the risk in A$ at 0.6640?
0.10 lots is 10 ounces. 10 x 0.01 = 0.10 US dollars per pip. 30 x 0.10 = 3.00 US dollars. 3.00 / 0.6640 = A$4.52.
In Australia
- Regulator
- ASIC regulates retail forex and CFD providers that offer services to Australian residents.
- Account currency
- Many Australian clients hold accounts in A$, so gold profits and losses are converted from US dollars.
- Funding methods
- Common deposit methods include PayID, BPAY and cards, and the available methods vary by broker.
- Tax
- Tax treatment of trading gains and losses depends on individual circumstances and is not covered in this lesson.
- Leverage
- Leverage limits for retail clients are set by ASIC and differ from those in other countries.